On February 17, 2012, Congress approved legislation that will prevent a 27.4 percent decrease in Medicare payments to physicians slated to go into effect March 1. The bill would freeze physician payments at their current rates until December 31, 2012. The provision is included in legislation that will extend the existing payroll tax cut to the end of the year. President Obama said he would sign the legislation as soon as it reaches his desk.

Under the legislation, the Government Accountability Office and HHS are directed to submit reports to Congress on developing a long-term replacement for the existing Medicare physician payment system. One of the downsides of the 10-month extension of the existing law is that a lame-duck Congress will have to address this issue again after the November elections and before January 1, 2013.

The “Middle Class Tax Relief and Job Creation Act of 2012″ (HR 3630) includes extensions of several existing Medicare-related statutes that were set to expire at the end of the month. To pay for some of these extensions and the freezing of physician payments, the legislation includes several offsets that will affect hospitals and laboratories.

Extensions. Hospital geographic reclassifications authorized under section 508 of the Medicare Modernization Act, which expired on December 1, 2011, would be extended through March 31, 2012.

The outpatient “hold harmless” provision, which expires on February 29, 2012, would be extended through December 31, 2012, except for sole community hospitals with more than 100 beds.

Under current law, the Medicare physician fee schedule is adjusted geographically for physician work, practice expense, and medical malpractice insurance to reflect differences in the cost of resources needed to produce physician services. The new legislation would extend the existing 1.0 floor on the “physician work” index through December 31, 2012.

Current law places annual per beneficiary payment limits for all outpatient therapy services provided by non-hospital providers, but includes an exceptions process for cases in which the provision of additional therapy services is determined to be medically necessary. The legislation would extend the exception process through December 31, 2012. The provision also extends the cap to services received in hospital outpatient departments only through December 31, 2012.

The ability of independent laboratories to receive direct payments for the technical component for certain pathology services would be extended through June 30, 2012.

The add-on payment for ground and air ambulance services, including in super-rural areas, would be extended through December 31, 2012.

Other health provisions. The Qualifying Individual (QI) program, which allows Medicaid to pay the Medicare Part B premiums for low-income Medicare beneficiaries with incomes between 120 percent and 135 percent of poverty, and which is set to expire at the end of the month, would be extended until December 31, 2012.

Transitional Medical Assistance (TMA) , which allows low-income families to maintain their Medicaid coverage as they transition into employment and increase their income, and which also expires February 29, would be extended until December 31, 2012.

Offsets. Under current law, Medicare reimburses providers for beneficiaries’ unpaid coinsurance and deductible amounts between 70 and 100 percent of beneficiary bad debt. The legislation would phase down bad debt reimbursement for all providers to 65 percent. Providers currently reimbursed 100 percent of their bad debt would have a three-year transition of 88 percent, 76 percent and then 65 percent. Providers reimbursed 70 percent of their bad debt would be reduced to 65 percent.

Medicare currently pays for clinical laboratory services under a carrier-specific fee schedules subject to national payment limits. Most lab services receive the national payment. This provision resets clinical lab payment rates by 2 percent in 2013.

Disproportionate Share Hospital (DSH) payments, which under the Patient Protection and Affordable Care Act (P.L. 111-148) would be reduced starting in 2014, would be reduced for one additional year, until 2021, under the legislation.

PPACA also included a provision known as the “disaster-recovery FMAP” designed to help states adjust to drastic changes in Federal Medical assistance Percentages (FMAP) following a statewide disaster. Once triggered, the policy would provide assistance for as many as seven years following the disaster, as long as the state continued to experience an FMAP drop of more than three percentage points. The legislation would make a makes a technical correction in this statute.

PPACA also established a Prevention and Public Health Trust Fund; authorizations to the fund were set to increase from $500 million in 2010 to $2 billion in 2015 and each year thereafter; the legislation would reduce the trust fund by $5 billion over 10 years.